Forming entrepreneurial teams: Mixing business and friendship

Abstract

Founding teams can form utilizing either a resource seeking strategy (instrumental focus on complementary skills) or an interpersonal attraction strategy (close relationships with similar others in an immediate network). Yet, utilizing both (dual) formation strategies may be more beneficial. Our paper provides novel theory and evidence to shed light on why and how a dual formation strategy, although challenging and difficult to execute, may be critical for early performance. We theorize that teams that employ dual formation strategies from the onset develop stronger transactive memory systems, owing to close relationships that facilitate smooth coordination among founders who specialize in complementary tasks. Stronger transactive memory systems thus mediate the relationship between initial formation strategy and early entrepreneurial success. Findings from two field observational studies and a field intervention study are consistent with our theory: teams formed based on a dual strategy raised greater seed funding on Kickstarter – a leading crowdfunding platform (Study 1), were more successful in a prestigious entrepreneurial competition (Study 2), and gained more profits from selling their initial products (Study 3). Our research advances knowledge on entrepreneurial team formation and offers practical recommendations to facilitate this process at such nascent, but critical stages.